Managing Your Money All-in-One For Dummies

By The Experts at Dummies

A hands-on, power-packed guide to managing all things money

Time and money. Those are the two most important assets you have, and smart people manage both of them wisely. Managing Your Money All-in-One For Dummies is your one-stop resource to turn to when you’re ready to manage your money. It offers everything you need to confidently handle your finances. When you’re ready to create a budget, pay down debt, and scale back your expenses, you’ll find the support you need here. If you’re eyeing the future, you’ll find advice on improving your credit score, saving for college and retirement, and planning an estate. As if all of that isn’t enough, this comprehensive book covers other financial topics such as buying insurance, investing in your 401(k), and so much more.

The authors of Managing Your Money All-in-One For Dummies explain how to handle your money in a way that encourages you to think and act positively, no matter what your financial situation looks like. And as you move toward financial freedom, you can come back to this book to get advice on topics that go beyond day-to-day money management, such as taking out a mortgage, investing online, and more.

• Get your financial life in order, whatever your stage of life
• Make a budget, manage your credit, and pay down your debt
• Demystify financial reports, online investing, and retirement plans
• Save for college and learn how to balance your saving and spending habits in any economy
• Navigate the new norm of online banking

Spend some time learning how to manage your money today. It’ll be a wise investment of both of your most valuable assets.

• Language: English
• Publisher: Wiley
• Release date: May 19, 2022
• ISBN: 9781119883371

Book preview

Introduction

Welcome to Managing Your Money All-in-One For Dummies, 2nd Edition — a big one-stop shop designed to help you get control over your financial life!

This book tackles a lot of big topics, but it tries to keep things simple, clear, and to the point. We’ve culled the best, juiciest information from a good sampling of For Dummies books on personal finance and compiled them into one fat volume. It’s absolutely packed with easy-to-grasp advice on all things having to do with managing your money. Whether you’re a stay-at-home parent, a truck driver, a burger flipper, or a CEO — whether you’re interviewing for your first job or you retired ten years ago — you’ll find scads of great tips and sound advice in these pages that will help you get a handle on everything from your credit cards to your health insurance, from your groceries to your taxes to your will.

About This Book

If it has something to do with your personal relationship to your own money, it’s a good bet that this book talks about it. Managing Your Money All-in-One For Dummies, 2nd Edition, offers money-management and personal-finance tips to help assess your true financial situation and take charge of your economic life. You find information on getting the best mortgage, saving for the future (whether for college or retirement), paying off debt, scaling back on expenses, managing home and personal budgets, repairing and improving your credit rating, handling taxes, planning an estate, banking online, saving and investing, and protecting your money and other assets.

The facts on the ground aren’t pretty at the moment. Many people feel more powerless than ever against mighty and faceless institutions that seem designed for nothing but to confuse and rip off. This book is here to tell you: It doesn’t have to be that way. By doing a little homework and taking a renewed interest in your own situation, you can reclaim many rights and advantages you probably didn’t know you had. If information is power, then this book is like a gigantic supervitamin.

A quick note: Sidebars (shaded boxes of text) dig into the details of a given topic, but they aren’t crucial to understanding it. Feel free to read them or skip them. You can pass over the text accompanied by the Technical Stuff icon, too. The text marked with this icon gives some interesting but nonessential information about managing your money.

One last thing: Within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just click the web address to be taken directly to the web page.

Foolish Assumptions

In order to shovel so much material on such a wide variety of topics into a single book that’s actually helpful and inviting, we make a few assumptions about you, the reader. See whether one or more of these shoes fit:

You can’t seem to get out from under credit card debt.

You’d like to find ways to spend less money, but the idea of sitting down and setting up a budget makes you feel slightly ill.

You’ve heard about how great it is to save for retirement in an IRA or 401(k), but the whole concept seems too complicated to deal with.

When tax time rolls around, you feel frightened and uncertain.

You can’t seem to keep up with mounting bills and wonder where in the world your paycheck goes every month.

You worry about being able to afford college for your kids.

You have a vague feeling that you should probably have certain kinds of insurance, but what they might be is a mystery.

You have health problems and are afraid they are going to end up bankrupting you.

If any (or all) of these descriptions hit the mark, this book is most definitely for you.

Icons Used in This Book

You’ll see a number of funny-looking little graphic elements sprinkled throughout this book. Here’s what they are and what they mean.

Tip This icon marks concrete tips and tricks that you can put to use in giving you more control over your financial life.

Remember This icon highlights passages that are good to keep in mind when it comes time to make decisions.

Warning Watch out! This icon alerts you to common mistakes that can trip you up and cause trouble when managing your money.

Technicalstuff This icon notifies you that something is a bit more complex than usual, and that you can safely skip it if you’re in a hurry or only want to skim the surface of the topic.

Beyond the Book

In addition to the material in the print or e-book you’re reading right now, this product comes with some access-anywhere goodies on the web. Check out the free Cheat Sheet for info on taking charge of your finances, dealing with debt, and so much more. To get this Cheat Sheet, simply go to www.dummies.com and search for "Managing Your Money All-in-One For Dummies Cheat Sheet" in the Search box.

Where to Go from Here

If you already have a specific interest in one particular area of managing your money or have a sense of what you really need to tackle first, by all means flip to the table of contents or index and zip straight to that section. You certainly are not expected to read this book cover to cover. On the other hand, if you’re here because you are well and truly lost when it comes to handling your finances, you may as well begin at the beginning with Book 1, Chapter 1, and go from there.

However you end up using this book, we hope you at least gain some insight into better and smarter ways of keeping more and wasting less of what you work so hard for. And we hope you find the determination to apply some of the ideas here to your life. You’ll be very glad you did. Just keep in mind that even in tough times like these, there are a surprising number of things you can do to beat the system, even if it seems stacked against you.

The idea is to empower yourself. No one is going to stop you if you try, and no one is going to do it for you. So, buck up and steel yourself to look at your life more critically and honestly. We all have bad habits. Recognizing them is half the battle. Get ready to take charge of your life and get more out of it. Good luck!

Book 1

Taking Charge of Your Finances

Contents at a Glance

Chapter 1: Assessing Where You Are Financially

Asking Some Preliminary Questions

Evaluating Your Relationship with Money

Checking Out Your Credit Reports

Finding Out Your FICO Score

Comparing Spending and Income

Assessing Your Spending Habits

Cataloging What You Own

Adding Up What You Owe

Chapter 2: Improving Your Relationship with Money

Working with Your Partner to Achieve Financial Goals

Believing in Yourself

Handling Setbacks

Asking for Help

Digging Out of Debt

Budgeting for the Future

Chapter 3: Building and Sticking to a Budget

Comparing Monthly Spending and Income

Tackling a Budget Deficit

Paying the Important Stuff If You Can’t Pay Everything

Examining a Budget Surplus

Finalizing and Sticking to Your Budget

Chapter 4: Cutting Spending and Boosting Income

Finding Ways to Spend Less

Bringing in More Bucks

Chapter 5: Cleaning Up Your Credit Reports

Understanding the True Value of Good Credit

Reviewing Your Reports for Problems

Using the Law to Get Your Credit Record Clean and Keep It That Way

Identifying and Disputing Inaccurate Information

Adding Positive Information to Your Credit Report

Chapter 1

Assessing Where You Are Financially

IN THIS CHAPTER

Bullet Being honest with yourself about money

Bullet Finding out about credit reports and your FICO score

Bullet Comparing your spending to your income

Bullet Figuring out what you own and what you owe

You’ve bought this book, so you’re probably at least a little worried — maybe really worried — about your financial health. Perhaps your debts have you biting your nails, and you’re not sure what to do about them. You’re probably not reading this book for the fun of it! And you probably don’t have a good handle on the true state of your finances. After all, it’s human nature to try to avoid bad news.

We understand. Facing financial facts can be unsettling and even scary. When you know the state of your finances, it becomes hard to ignore the fact that improving your financial situation requires changing your lifestyle and making some big sacrifices. But no matter how scary it is, confronting the reality of your financial situation is essential — and the good news is that seeking out this book is a terrific first step to doing just that.

This chapter begins your next step: figuring out where you are so you know where you need to go. Until you come face-to-face with the actual facts of your finances, you may find it impossible to develop the resolve and self-discipline you need to implement your plan of action. That’s why this chapter begins with this series of fact-finding exercises to get you going.

The more bad news you get as you complete these exercises, the more critical it is that you get serious about dealing with your debts. The sooner you do that, the quicker and easier it will be to improve your finances and the less likely that your creditors will take some of your assets or that you’ll have to file for bankruptcy. So let’s get going!

Asking Some Preliminary Questions

You can get a rough sense of your debt problem by honestly answering the following questions. The more yes answers, the more work you have to do.

Are you clueless about how much you owe your creditors?

Over time, is a growing percentage of your household income going toward paying your debts?

Do you ever pay your bills late because you don’t have enough money?

Have you stopped paying some of your debts?

Are you paying only the minimum due on some of your credit cards because you can’t afford to pay more?

Are you using credit and/or credit card cash advances to help pay debts and/or your basic living expenses, such as groceries, rent, or utilities?

Have you maxed out any of your credit cards, or have any of your cards been cancelled for nonpayment?

Do you have little or nothing in savings?

Have you borrowed money from friends or relatives to pay your bills?

Have debt collectors begun calling you, and/or are you receiving threatening notices from some of your creditors?

Are you having a hard time concentrating at work because you are worried about money?

Are you losing sleep because of your finances?

Have you and your spouse or partner begun to fight about money?

Are you drinking more or using illegal drugs to try to cope with your money worries?

Tip Are you an overspender? According to Debtors Anonymous, most compulsive spenders answer yes to at least 8 of 15 questions they pose at www.debtorsanonymoussb.org/takethetest.html.

Evaluating Your Relationship with Money

You may have the misconception that you are what you buy. You may believe on some level that the more you spend, the more successful and important you are. Developing that mindset is easy because all of us are constantly bombarded with messages that equate money and stuff with success. How often do you see ads promoting frugality, saving, or self-denial? If you’re struggling to keep up with the Joneses, you may need to reevaluate your friendships. The Joneses may be driving you straight to the poorhouse.

Recognizing emotional spending

Maybe you spend money for emotional reasons. For example, think about what you do when you feel sad or disappointed, or when you want to celebrate a success. Do you head to the mall? Do you click on your favorite retail website? Do you treat yourself to an expensive meal or enjoy a weekend getaway even though you really can’t afford it? If so, spending may have become a sort of addiction. Everyone likes to reward themselves from time to time, but doing so continually is a problem, and losing track of whether you can afford to treat yourself is a cause for real concern.

Tip If emotional spending describes your behavior to a T, you need to get a handle on it fast. One option is to meet with a mental health professional; you may qualify for help from a low-cost/no-cost clinic in your area. Or get involved with Debtors Anonymous (www.debtorsanonymous.org or 781-453-2743). DA uses the time-tested methods of Alcoholics Anonymous to help people understand why they spend and to gain control over their spending.

Living for the moment

Maybe your problem is that you live for today and don’t think about tomorrow. In some ways, living in the moment is great, sure — but not if you turn a blind eye toward your future. How do you know if you have this attitude toward money? You probably

Use credit too much

Don’t try to pay off your credit balances as quickly as possible, telling yourself there will be plenty of time to do that later

Save little, if anything

Rarely, if ever, take time to balance your checkbook, check out your credit reports and credit score, or maintain a household budget

Such money attitudes are self-destructive, and they do catch up with you eventually. Because you’re reading this book, they may already have.

Checking Out Your Credit Reports

Three national credit-reporting companies operate in the United States: Equifax, Experian, and TransUnion. Reviewing the information in your credit report from each company is an excellent way to see your true financial picture.

Getting copies of your credit reports

For a comprehensive survey of your creditworthiness, order a copy of your credit report from each of the national credit-reporting agencies, not just from one. Each report may contain slightly different information about you, partly because not all creditors report all consumer account payment information to all three agencies.

Tip You are entitled to one free copy of each of your credit reports every year. To order yours, go to www.annualcreditreport.com or call 877-FACT-ACT (877-322-8228).

Also, you are always entitled to a free credit report if

You are unemployed and intend to apply for a job within 60 days.

You are receiving public welfare assistance.

You believe that you have been the victim of identity theft.

You have been denied credit, employment, insurance, or a place to rent within the past 60 days because of information in your credit report.

To order additional copies of your credit reports after you’ve obtained your free annual ones, you must contact each of the three credit-reporting agencies individually:

Equifax:www.equifax.com; 888-378-4329

Experian:www.experian.com; 888-397-3742

TransUnion:www.transunion.com; 833-395-6938

Knowing why your reports matter

The credit report you get is the same one that your current creditors and potential future creditors use to make decisions about you. The more negative information is in your credit histories (such as past-due accounts, accounts in collection, accounts that your creditors have charged off as uncollectible, tax liens, and so on), the worse your finances are.

Your existing creditors may use the information to decide whether to raise the interest rates you are paying, lower your credit limits, or even cancel your credit. And whenever you apply for new credit, the creditors review your credit record information to decide whether to approve your application, how much credit to give to you, the interest rate you must pay, and so on.

Many insurance companies, landlords, and employers also review your credit record information. If they find a lot of negative information, insurance companies may not agree to insure you or may charge you higher-than-normal premiums; landlords may refuse to rent to you; and employers may not want to hire you or to give you the promotion you applied for.

Warning The federal Fair Credit Reporting Act says that most negative information remains in your credit reports for seven years and that a Chapter 7 liquidation bankruptcy and a Chapter 13 reorganization of debt linger there for ten years. However, the three credit reporting agencies have a policy of reporting completed Chapter 13s for only seven years. A tax lien sticks around until you pay it.

Tip For more detailed information about credit reporting, including advice on understanding your credit reports and correcting problems in them, pick up a copy of the latest edition of Credit Repair Kit For Dummies by Melyssa Barrett, Steve Bucci, and Rod Griffin (Wiley).

Finding Out Your FICO Score

A growing number of creditors, as well as insurance companies, employers, and landlords, use something called a FICO score together with (or even instead of) your credit history to make decisions about you. Your FICO score is a numeric representation of your creditworthiness and is derived from your credit history information. Like your credit history, the score is a snapshot of how you’ve managed credit in the past. As such, your FICO score is generally considered an indicator of how well you are likely to manage credit in the future.

Actually, a variety of different credit scores exist. Equifax, Experian, and TransUnion have developed their own credit scores. (Each credit-reporting agency sells its credit score on its website.) But the FICO score has become the industry standard. You can order your FICO score by going to www.myfico.com.

Your FICO score can range from 300 to 850. The higher, the better: A score of at least 720 is considered to be very good. If your score is well below 720, you may still qualify for credit from some creditors, but you’ll be charged a higher interest rate and you may not qualify for as much credit as you would like. Likewise, insurance companies may be willing to sell you insurance, but you’ll probably pay extra for the coverage, and you may not be able to purchase as much insurance as you would like. When you have a low FICO score, some landlords will not rent to you, and you may not qualify for certain kinds of jobs, especially those that involve handling money.

Tip You can raise your FICO score by improving the state of your finances. For example, your credit score will go up if you

Pay down your account balances.

Begin paying your debts on time.

Try to keep your credit utilization low.

Minimize the amount of credit you apply for.

Correct problems in your credit histories.

Comparing Spending and Income

Now comes the real measure of the state of your finances: figuring out how your total spending compares to your total household income. You may be in for a shock. Are you ready?

Gathering the necessary materials

To complete this exercise, you need a pad of paper, a pen or pencil, and a calculator, or open a new spreadsheet (such as in Excel) on your computer. You also need the following financial information:

Check registers

Bank statements

Receipts for major purchases not made with a credit card

Credit card account statements

Other expense records for the past 12 months

You also need records of your income for the past 12 months, such as pay stubs and deposit slips or direct deposit information. If you’re self-employed, you need your business records.

Remember Your spouse or partner should gather the same information because the goal of this exercise is to give you as complete a picture as possible of how your household spending compares to your household income.

Categorizing your expenses

Creating a worksheet modeled after the one in Table 1-1 (later in this chapter) will help you organize your spending and income information and make sure that you don’t overlook anything. This worksheet will also come in handy in Book 1, Chapter 3, which helps you build a budget.

The worksheet in Table 1-1 divides your spending into three categories:

Fixed expenses: These expenses stay the same from month to month. Examples are your rent or mortgage, car loan, home equity loan, and insurance.

Variable expenses: These expenses tend to vary from month to month. Examples are your groceries, gas, utilities, restaurant meals, movies, and books.

Periodic expenses: These expenses may be fixed or variable. You pay them just once in a while, such as quarterly, every six months, or annually. Tuition, some kinds of insurance, property taxes, and dues are examples.

Remember Some expenses listed as fixed on the worksheet may actually be periodic expenses for you. For example, instead of paying your auto insurance every month, you may pay it every quarter.

After you’ve calculated total annual amounts for each of your debts and for all your living expenses, enter them on the appropriate worksheet lines.

TABLE 1-1 Annual Income and Spending Worksheet

Figuring out the fritter factor

It’s so easy to fritter money away, isn’t it? A latte here, a happy-hour drink or two there, lunch out with friends or colleagues, new clothes. Before you know it, it’s the end of the month and you don’t have any money left. Where did it all go? Most likely, you unconsciously frittered it away on unnecessary, miscellaneous items. Each purchase may not have cost much, but together over a month’s time, frittering adds up to a significant amount. How much?

Suppose that every workday you spend $3 on a latte. In a month, you spend $60, and in a year that small daily purchase adds up to $720! If you also spend $2.50 per day for a bagel or pastry to go with the latte, you’re spending $110 each month and more than $1,300 per year! Scary, huh?

If you’re like the vast majority of people, you get paid money much less often than you spend it. You probably get paid every week, every two weeks, or every month — but you spend money every day, don’t you? This leads to a distortion in how you think about money and makes frittering all too easy.

Tip To help you get a handle on how much you fritter away, for one month write down everything you purchase with cash, a debit card, or a credit card. Your spouse or partner should do the same. Carry a small notebook with you whenever you leave the house so you can record every expenditure right away instead of trying to remember it later (or type notes on your smartphone). When the month is up, add up everything you spent on nonessential items. You’ll probably be shocked to see how much it amounts to. Multiply this number by 12 and put that number in your worksheet under Other in the Variable Spending section.

Totaling spending and earnings

Add up the numbers in each of the three spending categories in Table 1-1 to get a subtotal for each category. Then add up the subtotals. The final number represents the amount you are currently spending each year.

Next, add up all the income you received during the same 12-month period. Take into account not just your net household income (your take-home pay, which is gross income minus all deductions including taxes), but also any other income you or your spouse or partner may receive: government benefits, investments, royalties, child support or spousal support, income from a family business, and so on. Record that total on your worksheet.

Remember If you are entitled to child support and/or spousal support but the payments rarely come, don’t include those amounts when you calculate total annual income for your household. If it’s unreliable income, you can’t count on it to help cover your spending.

Calculating your financial bottom line

When you have a total annual income amount and a total annual spending amount, subtract your spending total from your income total.

If the final number you calculate in Table 1-1 is negative, you can probably guess what that means: The amount you are spending is more than your annual household income. You may be financing your lifestyle by using credit cards and cash advances, and/or you may be falling behind on some of your obligations. Furthermore, you may not be paying some of your bills at all, which means that if you add the amount of those bills into your calculations, you have an even bigger deficit.

Remember If you end up with a positive number in Table 1-1, your finances may be in better shape than you think. Or not. If the number is small, you may be just barely staying ahead. And if your bottom line is positive only because you’re paying just the minimum due on your credit cards each month or because you’ve stopped paying some of your debts, you have no cause for celebration. If this describes your situation, you are treading water, at best, and a financial setback such as a job loss or expensive illness could be devastating.

Assessing Your Spending Habits

Congratulations! You just took the most important step on the road to financial recovery. To varying degrees, everyone lives in a self-imposed fog when it comes to spending money. Spending becomes a comfortable habit — just the way you go about your daily life — and habits are always hard to break. But you’re on your way. Now that you’ve committed yourself to recovery, you can take a closer look at where your money is going, consider the possibility that overspending is a habit, and, if it is, examine ways to deal with it.

Okay, documenting your expenses has proven the obvious: You’ve wasted money and probably made some lousy financial decisions. Who hasn’t? (If you haven’t assessed your spending habits, see the earlier section "Comparing Spending and Income.") Now that you have a handle on the problem, you’re in position to take control. With the right attitude, eliminating unnecessary expenditures can be a little like a treasure hunt. There’s extra money out there — you just have to find it!

Although it’s your call on how much to spend on any particular item, here are a few things to zero in on:

Credit card payments: If a big chunk of your monthly income is going to pay credit card bills (especially if you’re paying minimum payments), bankruptcy may be the best solution by far (see Book 3, Chapter 5). If this is the case, you’re just spinning your wheels in the worst of all worlds — paying interest without significantly reducing the principal amount of the debts. For example, say you’ve got a fairly modest credit card debt of $3,000. At 17 percent interest — and a lot of times the interest rate is even higher — you’ll be indebted to the credit card company for about 35 years if you just make minimum payments.

Daily dribbles: We all live our lives amid daily patterns that eventually become habits. Many times, these habits include unnecessary spending that provides no real benefit or enjoyment. What seems like small stuff eventually adds up. Again, consider the latte on the way to work, the buck you put in the soda machine, and the $2.50 you spend for an afternoon snack — all without even thinking about it, right? Over the course of a year, you’ve blown $1,430. If you invested this money for 20 years at 10 percent interest, you’d end up with more than $80,000!

Extravagances: True, one person’s luxury is another’s necessity, but you really need to think long and hard before plopping down $100 at a restaurant or $60 on yet another sweater. It’s sometimes helpful — though painful — to figure out how much work you had to do to pay for a particular treat. If a night on the town costs you a day and a half of work, is it really a good return on your investment?

Impulse purchases: In the later section "Cataloging What You Own," you’re asked to list all your belongings; for now, just make a trip to your attic, basement, and garage. If you’re like most people, you’ll see tons of stuff you’ve bought but rarely, if ever, use. Simplify. And go further: Sell.

Gifts: Studies show that many folks spend lavishly on gifts they would never buy for themselves. Christmas, of course, is the granddaddy of budget-busters. Scale back gifting.

Overwhelming mortgage payments: If you obtained your mortgage recently, most of your monthly payment goes toward the interest. You may not have much equity, and the home may not be worth keeping — especially if it’s a second mortgage.

Killer car payments: New cars are awfully pricey these days. If you’re struggling to maintain payments on a new car, you may want to consider selling it and buying something more affordable. Plenty of reliable, moderately priced used cars are on the market.

Cataloging What You Own

When you know what your spending habits and your earnings are, you need to get an equally firm grasp on what you own. Documenting your assets

Helps determine what property you may lose by filing bankruptcy

Lets you know whether selling things could head off bankruptcy

Demonstrates how little you have to show for credit card debt

Use Table 1-2 to get a rough idea of what you own and how much it’s worth.

TABLE 1-2 What You Own

Adding Up What You Owe

Purveyors of consumer credit want you to think in terms of monthly payments instead of considering the total amount you owe. It’s a lot easier to sell that new car when the customer focuses on a $400 monthly payment rather than on a $25,000 albatross. But when it comes to assessing your financial condition, knowing the total amount of your debts is critical.

Remember Consider home and car loans separately from other debts, for two reasons:

You can reduce or eliminate these loans if you sell the house or car.

Bankruptcy affects home and car loans differently than other debts.

You can find out how much you owe on these loans by phoning the creditor. If you’re behind in payments, also find out how much it will take to bring the loan current (that is, not behind anymore, as opposed to paid in full).

Filling the blanks in Table 1-3 helps you get a grip on what you owe.

TABLE 1-3 What You Owe on Mortgage and Car Loans

Calculating how much you owe on other debts is a little tougher. Ordering credit reports is one place to start (these reports are covered earlier in this chapter and in Book 1, Chapter 5). You can often determine the amounts owed on judgments, child support, alimony, fines, and restitution obligations from documents on file in the courthouse. You can get a rough idea of how much you owe on income taxes by looking at copies of your income tax returns, but this method doesn’t give you the amount of penalties and interest that have accrued. Hopefully, you have a rough idea of how much you owe on student loans. If not, find out.

When you know what you owe, use Table 1-4 to help you keep track of it.

Warning If creditors don’t know where you live or have given up on you, don’t ring their bell by calling them. However, you may have to face the music about the money that you owe eventually because some types of debts will not go away. So use the time when creditors are not hounding you to plan how you will deal with your debts. Among other options, for example, you can try to increase your income and/or save more money so that you can eventually contact your creditors and offer to satisfy your debts by paying a percentage of their total amounts. You can also contact a reputable credit-counseling organization for help working out payment plans with your creditors; or you can look into bankruptcy as a possible solution to your financial problems.

Tip At this point, you should have a better idea of your particular situation. Feel free to scan the table of contents or the index to go straight to the area you need to address first. If you’re like most folks, it likely involves debt. If that’s your problem, run — don’t walk — to Book 3. If you want to continue your preliminary assessment and examine your relationship to money, turn the page to Chapter 2 of Book 1 and keep reading.

TABLE 1-4 How Much Do You Owe on Other Debts?

Chapter 2

Improving Your Relationship with Money

IN THIS CHAPTER

Bullet Achieving financial goals with your partner

Bullet Staying positive

Bullet Dealing with setbacks and seeking help

Bullet Getting out of debt and budgeting

Just as you have relationships with the people in your life, you also have a relationship with money — how you earn it, spend it, lose it, waste it, save it. It’s important to take a good, hard look at how you use and misuse money. Otherwise, you’ll never really get a grip on what happens to it, and you’ll always be left scratching your head, wondering what happened to your earnings. This chapter helps you analyze and improve your own habits and patterns regarding how you handle your love-hate connection to your cash.

Remember Most people are not in the boat alone, and finding financial common ground can be difficult when one spouse is a spendthrift and the other’s a miser. Being smart about money is a choice that’s easiest to live with if both partners share the same general financial goals, even if their money styles are a bit different. If you both want to save money, get out of debt, live within your means, and attain mutual long-term goals, it’s important to discuss your different approaches to money management and find some common ground. Otherwise, your frugal efforts may be voided by your partner’s poor spending habits.

Children can also be difficult to win over. If you listen carefully, you can probably still hear the echoes from the latest whine-fest: "But I want it now!"

This chapter helps you come to terms with others, keep the faith, manage setbacks, get help when you need it, dig your way out of debt, and design a budget.

Working with Your Partner to Achieve Financial Goals

Wouldn’t it be nice if everyone were exactly the same? Well, actually not. You probably wouldn’t want to live in a boring world of identical clones that look, think, and act exactly alike. Variety is the spice of life, and it’s also the spice of relationships, even in the area of finances. Just like the ingredients in your favorite meal, the right amount of spice can make the mix of flavors absolutely perfect — but too much spice is almost unbearable. You don’t need to do away with each and every difference; you just need to blend the flavors together.

Resolving (or at least discussing openly) any financial differences between you and your partner is important. In order to fully adopt many of the practices outlined in this book, everyone involved needs to understand the benefits of adopting a more frugal lifestyle and how important it is to control impulsive spending habits.

Recognizing your financial strengths and weaknesses

If you’re currently involved with someone and considering a serious commitment, or if you’ve never discussed your spending habits with your spouse or significant other, take some time to talk about your financial mindsets. Identify your differences and spend some time planning how you want to handle them in your relationship. By dealing with your financial differences, you’ll not only cut down on arguments later in life, but you and your partner will become a united front working for common financial goals.

Remember Sit down together and share details about the practical aspects of your personal money style. If you’re already married, use this opportunity to reevaluate your current financial situation. Ask yourselves, individually, the following questions and then compare answers:

Do I carry credit cards? How many and what kind? Gas cards, department store cards, general credit cards? Do I pay the cards in full each month, or just the minimum payments?

Do I carry cash with me? How much? What do I use it for? How do I keep records of cash spent?

What does my credit history look like? Any debt problems, overdue bills, repossessions, bankruptcy filings, or late payments?

What sort of insurance coverage and financial contingency plans do I have for medical expenses and other emergencies?

Do I have a system for paying bills? What is it?

How do I keep track of receipts and tax-related paperwork?

Do I buy lunch at work every day or bring it from home?

Is recreational shopping a favorite pastime? What sort of limits, if any, do I set for my personal shopping sprees?

How do I decide to make a major purchase such as a car, new furniture, large appliances, or a home?

How much of my income do I save each month, and what sort of system do I use for saving money?

What is my philosophy about financially assisting elderly, disabled, or cash-strapped relatives?

Do I want (or want my spouse) to stay home after we have children?

Is tithing or regular philanthropic giving important to me?

How far in debt can I go and still feel comfortable?

You may well find that your significant other is a spendthrift and you’re a miser or vice versa — opposites tend to attract each other. One reason opposites attract may be that on some unconscious level, people are aware of their own weaknesses and shortcomings and know almost instinctively what they need to complete themselves. If you have trouble keeping to a written budget, you may choose a life partner whose greatest joy is keeping detailed written records of every flower growing in the yard or every penny spent on bubble gum by the kids — and imagine you balance each other out in the process. Having differences is healthy, but these differences can test your limits of grace and reason.

If you are the spend-a-holic in the relationship and are already convinced of the need for financial change in your life, the road ahead is much easier. Unfortunately, reforming a loved one from their spendthrift ways can be difficult and requires a lot of sensitivity and tact. Don’t allow yourself to become adversarial with the spend-a-holic in your life. Instead, be reasonable and show how adopting frugal habits can reduce outstanding debt, free up money for fun activities such as vacations, and help to finance large future expenses such as buying a house or paying for college tuition.

Identifying long-term goals

You’ve probably heard the old cliché, If you don’t know where you’re going, how will you know when you get there? Well, it holds true in the area of family finances, too. Establishing long-term goals for yourself and your family helps to keep your current financial picture in perspective. For example, if one of your goals as a couple is to have a full-time parent at home when the new baby arrives, you can start cutting back on spending now in order to get out of debt and establish some savings before that big day arrives. Keeping your long-term goals in mind will help keep you on track whenever you’re tempted to spend money on extras.

A necessary step toward working together as a financial team is to establish your life goals and review them with your significant other. Ask yourself the following questions to help you determine your long-term financial goals:

What hobbies do I want to pursue to add recreation and fun to my life?

What place does education hold in my future or that of others in my immediate family?

How important is home ownership in my future?

What are my career goals? What further training, if any, do I need to reach those goals?

How much time, money, and effort do I want to give in the near future to charity or church-related activities?

What character traits do I value most and want to develop in my own life and the life of my children? Are my financial goals and decisions in line with those character traits?

What are my retirement goals?

How will I take care of future healthcare concerns?

How soon do I want to pay off any outstanding consumer debt?

At the end of my life, what things might I regret if I choose to spend my money on less-important pursuits?

Remember Writing out your goals and the values that are important to your family can go a long way toward keeping your life and finances on track. But even if you don’t write down your goals, thinking through your priorities and keeping them in mind as you make decisions (financial and otherwise) is an excellent habit.

Establishing savings goals

After you’ve discussed your financial desires and goals for life, set some savings goals. If you and your partner are not accustomed to working together toward a financial goal, start with something relatively small like saving for a new couch or your next short vacation. You can usually reach these goals within six months to a year, and so you get a fairly quick return on your savings investment — and an opportunity to reinforce the value of working together toward a savings goal. After you’ve seen that you can work together toward small goals, start working on long-term goals like retirement and the kids’ education.

Tip One way to set up a savings plan is to set aside a small amount of money in a special account from each paycheck until you’ve reached your short-term goal. Keep a big jar on the dresser, where you can empty your pockets and purse of loose change. It’s entirely possible to finance a long weekend at the ocean with just the change you throw into a jar every day. Seeing a successful example of how easy it can be to reach a savings goal can be just the thing that many spendthrifts need to give second thought to their impulsive spending habits.

Finding peaceful solutions to differences

Above all else, it’s important to discover the art of diplomacy when you identify significant financial differences between you and your partner. Money problems are the root of all sorts of marital discord and strife.

Warning Even when you’re in the middle of a major disagreement about finances or your savings goals, the relationship doesn’t have to break down if you continue to treat each other with kindness and respect. You will never convince people to change their minds by yelling at them, calling them names, manipulating their emotions, or giving them the silent treatment.

Tip If you are beyond the talking stage and are in the yelling, crying, door-slamming stage, consider seeking help from a trained financial counselor with a local debt-counseling agency. You can contact the National Foundation for Credit Counseling, a nationwide nonprofit network of Consumer Credit Counseling Service offices, at 1-800-388-2227 and www.nfcc.org. The NFCC can put you in touch with a counseling office near you. Even if you’re not dealing specifically with debt issues, a financial counselor can help you work through financial planning decisions in a calm, reasonable fashion. Many religious communities and churches offer free counseling of this sort, too. Just having an uninvolved third party helping you think calmly through your financial choices can be tremendously helpful.

THE THREE-CHECKING-ACCOUNT SYSTEM

One way for partners who each have their own income to deal with differing money habits is to open three checking accounts: one joint account (for paying bills) and an individual account for each person. Note: It’s important to first establish a workable budget before implementing the three-account system so each partner knows how much to deposit each pay period to cover the basics. Find out more about budgeting basics later in this chapter.

When you receive your paychecks, you each deposit a predetermined amount into the joint account. The joint account is then used for paying bills and for short-term savings for future expenses. The individual accounts are for the money left after you both pay for the basic essentials. If one partner wants to fritter their money away on designer coffees and dinners out, fine. The other person can be happily saving for that nice vacation they’ve been dreaming of for years — whether they choose to take the spendthrift spouse with them on vacation may be another story, though.

Pulling together with your spouse or partner

If you’re the primary money manager in your family, you will probably shoulder most of the responsibility for turning your family’s finances around. However, the cooperation of your spouse or partner and family is essential. Although you may pay the bills each month, you and your spouse or partner both spend your family’s money, so that person has a very direct effect on the success or failure of your financial program.

The support and cooperation of your spouse or partner is essential to getting your family’s finances back on track. One of you can’t be pinching pennies while the other is spending like there is no tomorrow. Both of you should be totally committed to getting out of debt and reducing or eliminating the use of credit.

Tip You may find that talking about money is easier in a public place, such as a coffee shop or a park. If a change of venue doesn’t improve your communication, consider scheduling an appointment with a marriage counselor or religious advisor so you can get at the root problems.

When you talk with your spouse or partner about your debts, try to stay focused on solutions to your financial problems instead of letting the conversation turn into a blame game. Both of you are probably responsible for your debts to some degree, and finger-pointing won’t pay the bills. Keep in mind that no matter how hard you try to cooperate with one another, money problems create a lot of stress in a relationship. There are no easy solutions for getting through the tough times ahead. We can only encourage you to work hard at keeping your relationship amicable.

Warning If your spouse or partner is unwilling to work with you to help your family get out of debt, and if you are concerned that their spending will condemn you to a life of financial troubles, you may have little choice but to reevaluate your relationship. Although ending your relationship at the same time you are trying to resolve your family’s financial problems won’t be easy, you may conclude that it’s best.

Talking money with your children

You should be honest about your family’s finances with your children. They don’t need to know all the details, but if your children are old enough to sense money-related tension and anxiety in your household, you need to tell them what is going on and what you are doing to improve things.

If you’re like a lot of parents, your initial instinct may be to protect your children from your family’s financial problems. Usually, that doesn’t end up being a good idea. Even very young children are amazingly perceptive about negative changes in their environment. They may not know exactly how things have changed or why, but they can sense the change and may develop problems as a result unless you help your kids understand and deal with what is going on.

Help your children maintain a sense of security by explaining your family’s financial situation and what they can expect in the months ahead. Take their ages and maturity levels into consideration when you decide what to say and how to say it. Tell them as much as you think they need to know and can process intellectually, being careful not to scare them.

You probably need to go into greater detail with a preteen or teenage child than you do with a younger child. Teen and preteen kids generally have more financial needs and wants than young children and are more subject to peer pressure, so they need a clear sense of how they may be affected by your efforts to get out of debt. For example, they may have to start bringing their lunches to school, or you may need them to get part-time jobs to help pay for their gas, auto insurance, or nonessentials.

Warning Compared to younger kids, preteens and teenagers are most apt to have difficulty accepting the fact that they can’t do and have all the things they have become used to. Peer pressure can be a powerful thing.

Regardless of the age of your children, reassure them that things may be different for a while, but you love them and everything will be okay. Help them feel safe by letting them know that you and your spouse or partner are putting a financial turnaround plan together, by keeping their day-to-day routines as unchanged as possible, and by doing fun things together.

Tip Be alert to signs that your family’s financial problems are creating a lot of stress in your children’s lives or that they are becoming depressed. Signs of trouble include crying, angry outbursts, withdrawal, behavior problems at school, headaches, stomachaches, not wanting to go to school — just about anything out of the ordinary. Try to get your kids to talk about what is bothering them. If they won’t, or if their symptoms get worse, they probably need to meet with a mental health professional. Contact the psychologist at their school and consider letting their teachers know what is going on so they can look for signs of trouble as well.

As you help your children cope with your family’s financial circumstances, bear in mind that your money troubles offer you an opportunity to teach them important lessons about managing money and the dangers of too much debt. When they become adults, they may be able to use those lessons to avoid financial trouble. One good way to help them master these lessons is to involve them in creating a monthly household budget. Find out more about budgeting later in this chapter.

KEEPING FAMILY RELATIONSHIPS A PRIORITY

Most people at the end of their life don’t wish they’d spent more time at the office, but they do often regret not spending more time with their family, especially when their children were young. Unfortunately, people who find themselves with debt payments that exceed what they can reasonably afford usually cast about for ways to increase their income.

Instead of taking a part-time job, working overtime every week, or getting involved in a get-rich-quick scheme, look at your budget for ways to cut back your spending. Decreasing spending is usually a lot easier than increasing your income. Plus, you won’t sacrifice time with your family in exchange for a paid-off credit card. By cutting back and tightening your money belt, you can pay off your bills and watch little Johnny’s championship T-ball game on Saturday afternoon.

Believing in Yourself

Getting out of debt can be no fun. It can be daunting to owe a bundle to your creditors and to be faced with the change and sacrifices that are necessary to turn your finances around. Success may require every ounce of determination and self-discipline you can muster. It definitely requires you to maintain a can-do attitude — a get-out-of-debt attitude — over a sustained period of time, because your finances are probably going to improve gradually, not overnight.

A positive, I-can-get-out-of-debt attitude is key to turning your finances around. You have to believe that you’ve got what it takes. Here are some proven strategies for helping you believe in yourself and set your resolve:

Tip Draw strength from tough challenges you’ve faced in the past. Maybe someone in your family had a serious illness, you went through a divorce, a close relative or friend died, or you experienced a major disappointment in your career. Think about what you did to get through those tough times and use the memories to remind yourself of your strengths and abilities.

If you believe that you’re largely responsible for your family’s financial problems, don’t beat yourself up about what you did or didn’t do. You can’t change what happened, and letting feelings of self-recrimination and guilt bog you down makes it a lot harder to do what you need to do now. Benefit from your mistakes and move on. When negative thoughts come into your head, shrug them off, knowing they cannot control you after all.

Remember A negative attitude can be contagious. If you act bummed out all the time about your family’s financial situation, your bad attitude is likely to spread to everyone else in your household. If you have kids, don’t forget that they are observing how you behave in the face of adversity, so set a good example.

Remember that you’re not the only person who has ever experienced financial problems. Millions of people have been where you are and have had to do what you must now do to get out of debt. If they can do it, so can you!

Get inspired by reading a book or watching a documentary about someone who had to overcome something difficult. These types of stories are plentiful, but if you need some suggestions, consider Franklin Delano Roosevelt, Nelson Mandela, Helen Keller, or Stephen Hawking.

Motivate yourself by visualizing your future. Close your eyes and think about what life will be like when you don’t have a lot of debt, you’re not stressed out about money all the time, you have a comfortable balance in your savings account, and you and your family can afford a few extras.

Don’t stay silent about your money troubles. You don’t need to shout it from the rooftops, but let your close friends and family members know that you are going through some financially tough times, even if you have to swallow your pride and admit some mistakes. You may need their support and encouragement. If you’ve kept your financial problems a secret until now, telling people about them can take a huge load off your shoulders. And you just may discover that your friends or relatives have been in similar situations.

Tip If some of your friends or family members are also experiencing money problems, create your own support group. Get together regularly to share ideas about getting out of debt, to give one another encouragement, and to celebrate your successes.

Boost your self-confidence by getting smarter about money. Enroll in a basic personal-finance class or read a good book on the subject (such as this one). Make regular visits to personal finance websites such as www.bankrate.com for practical information about all aspects of everyday money management.

Be realistic about how long getting out of debt will take. Don’t expect to pay off your high-interest debts, build your savings account, and have extra money in your pocket by next week. Depending on the specifics of your finances, tackling your debt could take months — or, yes, years. As long as you’re serious about dealing with your debts, you’ll see gradual improvement in your finances, but there’s no quick fix for serious money problems — so don’t get yourself down because you can’t find it.

Rethink your definition of success. It’s easy to get caught up in the idea that success means spending a lot of money. After all, the more stuff you have, the happier you’ll be, right? That’s certainly what credit card companies and advertisers want you to believe! But there are other ways to define success: being a good parent, spouse, and friend; helping the less fortunate; living an ethical life; making a difference in your community; and so on. Money can’t buy these things, yet they can bring you more profound and lasting happiness than more stuff ever could.

Stop making excuses. Maybe you hear yourself saying, Yes, but I don’t have time to find cheaper insurance. Yes, but living on a budget is too much work. Yes, but I can’t earn more money right now. You can make the necessary changes in your life. You can’t afford to make excuses.

Handling Setbacks

When you begin down the path toward financial health, you may get off course occasionally. If you do, don’t beat yourself up. Instead, refocus, steel your resolve to do better from now on, and move forward.

Okay, that’s great advice, but is it realistic? Negative thinking can creep up on anyone, making it seem impossible to move forward. Maybe you’re tired of living on a budget, having to say no to your kids, and working all the time. Maybe you’ve been hit with a financial setback such as a creditor who refuses to negotiate with you or the loss of an asset you wanted to hold on to. Of course you’re going to feel blue once in a while. What can you do about it? Well, lots:

Celebrate each get-out-of-debt success. At a minimum, take time to acknowledge what you’ve achieved. Maybe you got one of your creditors to agree to lower the interest you are